Jamie Dimon Has Issues (or Meet The Idiot Selling Gold)

Update: On Friday April 26, JPM customers (US government??) added a whopping 558 contracts (55,800 troy oz.) to the totals reflected in this article. The CME group daily report can be found here, but note, these daily reports go into Never-neverland when the new one comes out (so save it if you want it for future reference).

Somebody should explain to the blathering numbskulls at CNBS that when just one firm accounts for 99.3% of the physical gold sales at the COMEX in the last three months it’s not what most of us on this side of the rainbow would consider “broad-based” selling. Of course discovering this kind of relevant information requires an internet connection, 2nd grade math and reading skills, and the desire to do a teeny-weeny bit of reporting. Sadly they’ve wandered so far down the rabbit hole that the concept of “physical demand” (i.e. people actually wanting to take possession of the stuff) is puzzling to them because the vast majority of the world’s so-called “gold-trading” takes place in the realm of make believe (which is their natural habitat). It’s all fun and games until somebody loses their metal and “somebody” has lost one hell of a lot of metal in the last 90 days.

This is the CME Group’s COMEX metals issues and stops year-to-date report, which can be found here everyday for free. It chronicles the physical delivery notices of various metals, including gold. Let’s have a look:

“I” is for “Idiot”That’s how I remember it, anyway. “I” actually stands for “issues,” meaning the firm parted with its metal (@ 100 troy ounces a shot), and “S” stands for “stops,” meaning the firm took delivery of gold. “C” is for customer accounts, “H” is house accounts. The first thing you should notice is that most transaction net out to zero in a given month (blue boxes), meaning the firm’s gold holdings didn’t change. What they delivered one day they got back the next, or vice versa. The green boxes show firms who received more than they delivered and the red boxes indicate firms who coughed up gold for Bernanke bucks (aka idiots). Note that Deutsche Bank’s massive take in February more than offsets its deliveries in December and April.

Notice one more thing before we move on: Despite Goldman’s much ballyhooed “Gold Sucks!” call a few weeks ago, the squid has not parted with any yellow metal whatsoever in 2013. Hmmm.

Now for the main event:

J P Morgan has fumbled ownership of 1,966,000 Troy ounces of gold since February 1. That’s 74% more gold than the US mint delivered through its American Eagle program in all of 2012. I mention this because there’s little doubt in my mind that the US government is one of JPM’s gold “customers.” So (if I am correct) the same US government who just let the Morgue dump its gold on the COMEX floor will once again be suspending gold sales to peasants.

Maybe Jamie Dimon figures he’ll buy back all that gold on the cheap when the rest of the world realizes how smart he is. Or maybe he’s once again displaying that his firm doesn’t have the slightest idea what “hedging” is and is teetering on the brink of collapse. That would explain the April 11th meeting between President Obama and the Pig 5 bank CEOs, wouldn’t it? And you just have to get a little misty that Lloyd Blankfein was nice enough to provide some hot-air cover for his competitor, don’t you?

One thing’s very clear: When it comes to selling physical gold, J P Morgan is acting alone. The 130 contracts NOT delivered by JPM in the last three months (of which 110 were fromABN AMRO) are but a footnote. If Jamie’s right, he’ll look like a genius in a few months, if not he should be able to recycle his quote regarding the infamous “London Whale” losses: “Just because we’re stupid, doesn’t mean everybody else was.” Time will tell.

100 years ago John Pierpont Morgan famously testified to Congress, “Money is gold, and nothing else.” (Note: That is the exact quote, the full testimony can be found here). One has to wonder what the big guy would think of his legacy’s disregard for sound money, $70 Trillion derivatives book, and “House of Cards” “Fortress” balance sheet.

One more very, very important thing.Anybody who says there’s been gold selling in the GLD is a freaking moron (Bob Pistrami, I’m looking in your direction). The GLD works much like a coat check. Unless you think checking your coat constitutes a real transaction of some kind you shouldn’t think of changes in the GLD’s gold holdings as sales. They’re not. When you check your gold into the GLD you get shares (like a claim check). Where it gets wierd is you can sell these claim checks to nimrods who seem to think they’ve bought your coat, but aren’t actually allowed to wear it.

What nobody seems to appreciate is that every share of GLD is allowed to be sold TWICE (long and short, and it’s really important to understand that). If you’re foolish enough to doubt me (and foolish enough to short gold), go short GLD shares and see if anyone knocks on your door demanding gold. Saying the GLD is 100% backed by gold is a bold face lie because they’re can be twice as many shares in play as gold backing them, which means GLD shares may be only 50% backed by gold before any rules are broken.

When GLD (or any ETF for that matter) shares sold exceed the existing shares PLUS all the shortable (double-sold) shares, legitimate shares can not be found for settlement and that must be reported to the SEC’s “Fails to Deliver” list, which is published twice a month with about a four-week delay (here).

April 15, 2013 was this biggest volume day ever for GLD (93.7mm) and I’ll guarantee you right now that record fails to deliver will be reported on or around that date, which should have required more gold to be deposited with the GLD (but that didn’t happen). So instead of the half-assed explanation Pistrami offered (here) of how he thinks the GLD works, he should have raised the question of whether or not there were enough legitimate shares of GLD to facilitate trading (I say no way in hell).

Gold continues to be pulled from the GLD (which really means people want their coats back) and still no one’s concerned about the number doubled-owned shares. Worse yet, the responsibility for sorting this unholy mess out falls to SEC chief Mary Jo White who is celebrating her 16th day in office.

I can’t wait to see what happens next….

Notes for Nerds: This piece is not intended to describe the inner workings of the COMEX or GLD in detail, so don’t bust my balls with minutiae, unless it is relevant to the discussion of JPM’s massive gold sales or the double-ownership of ETF shares. Double-owned ETF shares are huge problem with ETFs in general, but the misrepresentation (by omission) of this fact by ETFs supposedly backed by tangible assets like gold and silver seems more egregious to me.

In addition to the YTD CME Group metals report, you can track the hilarity on a day-by-day basis here.

The February 1 to April 25 delivered gold contracts info referenced included only transactions between firms. For that reason Morgan Stanley’s 307 contracts transferred from house account to customer account was excluded from the calculations.

With one entity controlling shares, I don’t think the same share can be borrowed more than once.

This is from the GLD prospectus:

BOOK ENTRY FORM
Individual certificates will not be issued for the Shares. Instead, global certificates are deposited by the Trustee
with DTC and registered in the name of Cede & Co., as nominee for DTC. The global certificates evidence all
of the Shares outstanding at any time. Under the Trust Indenture, Shareholders are limited to: (1) DTC
Participants; (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC
Participant, or Indirect Participants; and (3) those banks, brokers, dealers, trust companies and others who
hold interests in the Shares through DTC Participants or Indirect Participants. The Shares are only transferable
through the book-entry system of DTC. Shareholders who are not DTC Participants may transfer their Shares
through DTC by instructing the DTC Participant holding their Shares (or by instructing the Indirect
Participant or other entity through which their Shares are held) to transfer the Shares. Transfers are made in
accordance with standard securities industry practice.

If LIBOR can be manipulated, do you really think the COT reports are TRUE. Its the same crowd who screwed around with LIBOR that are screwing around with GOLD. Hell, I bet it was discussed in the same ‘risk meeting’.

I must admit I’m always skeptical of data too, but I can’t think of a single reason why TPTB wouldn’t make an effort to make it appear that there where multiple sellers of gold. My suspicion is that the other players want no part of this.

True, but maybe when the bottle spins around next time it will be GS turn to do the ‘effect’ on a unsuspecting market some where? After GS went short gold right on time. Maybe that why Lehman fell, they didn’t accept there turn at the time it was asked of them.

[…] McHugh at Across the Street offers an interesting perspective in his post titled Jamie Dimon Has Issues (or Meet The Idiot Selling Gold). It would appear that JP Morgan, aka “The Morgue”, was responsible for 99.3% of […]

I think but could never prove, this is how the Germans get their gold back, it must be stolen first. Maybe you guys are clever enough to demonstrate the facts but none of us, sadly are clever enough to halt the criminals.

When someone shorts a stock or ETF shares, they must borrow the shares from someone who already has them and sell them to a third party (who has no idea that his shares are owned by someone else as well). So two people now own the same shares and the short seller is obligated to replace the shares he borrowed to the first owner, which means he must buy them.

Imagine there’s only 100 shares and You own them. I (a short-seller) borrow your shares, promising to replace them when I’m done, and sell them to your brother. So you own a hundred and he owns a hundred. That’s two hundred shares owned, but there’s ONLY 100 SHARES!!!

Now, how in the world can this trade be unwound? There are no shares available for purchase. The only way I can unwind it is if your brother sells back to me or more shares are created.

I guess I am trying to understand how the fund accounts for shares outstanding while still allowing short sales. Whoever dreamed this stinker up is evil.

It is my understanding that the Authorized Participants are the only ones who can create shares. They put up the gold, create the shares and in turn they sell the shares to brokers, institutions etc…

So the shares outstanding numbers would simply correspond to shares that came into existence through the basket or “creation unit” of the Authorized Participant(s)…

But if brokerages et al are lending shares to short sellers…and those brokerages et al don’t happen to be affiliated with the AP… there is obviously some creatio ex nihilo going on…

The fund publishes the NAV as a value per share “outstanding” of the fund’s underlying assets (gold).

Clearly there could be a separate “implied” ownership through short-selling, and the short-sellers’ shares are not being counted in the shares outstanding and therefore they are not being accounted for in the NAV.

Consequently, the gold in the trust could be 50% less per share. Of course, this doesn’t mean that if the fund where to close that a shareholder would still receive at least 50% of his money since the AP’s shares are the only ones that are really backed by gold. Or, he is the only one who can weave paper back into gold.

Everyone else’s shares could go to zero. (In such a scenario, the AP’s won’t get blamed. Short sellers would. That’s convenient)

@Michael Williams : ” 1075.23 tonnes is all that remains. At what point do the APs have to walk away because the real owners of the gold they are parking in the trust want it out of the casino? My guess is somewhere around 900 tonnes–its game over.

[…] OK, now before we go any further, I want you to take a second and review this excellent piece by Mark McHugh from back in April. Not only had he spotted this trend, he also goes on to explain how and why the deliveries out of the “customer” account should almost always match.There should not be a significant disparity. Jamie Dimon Has Issues (or Meet The Idiot Selling Gold) […]

Mark McHugh ponders the great issues of our time with, what many have called, a less-than-great brain. He is a Wall Street outsider (a.k.a. the black helicopter crowd), who believes there should not be antonyms found in the phrase, Truth, Justice and the American Way. Mark